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Schwab Q3 Earnings Aided by Higher Revenues, Lower Costs

The Charles Schwab Corp. 's SCHW third-quarter 2015 adjusted earnings of 27 cents per share surpassed the Zacks Consensus Estimate by 3.8%. Moreover, the bottom line was up 3% year over year.

The Charles Schwab Corporation - Earnings Surprise | FindTheBest

Schwab's shares jumped nearly 1.6% in the early market trading, which depicts investors' optimism regarding continued improvement in top line. Notably, price reaction during the full trading session will provide a better idea about how investors accepted the results.

Revenue growth, primarily driven by increased equity market volatility, acted as a tailwind. Further, lower expenses supported the bottom-line improvement. Also, an increase in total client assets and new brokerage accounts was impressive. However, a drastic rise in provision for loan losses was an undermining factor.

Results excluded net tax benefits of approximately $14 million or 1 cent per share. After considering this, net income available to common shareholders totaled $365 million, up 17% year over year.

Performance in Detail

Net revenue was $1,597 million, up 3% year over year. The rise was largely attributable to asset management and administration fees (up 2%), net interest revenue (up 11%) and trading income (up 9%). However, lower other revenues (down 45%) partially hampered revenue growth. The reported figure beat the Zacks Consensus Estimate of $1,585 million.

Total non-interest expense fell 2% year over year to $1,014 million. All expense components, except communications, depreciation and amortization, and other cost, declined on a year-over-year basis.

However, provision for loan losses was $5 million, up significantly from $1 million recorded in the year-ago quarter.

Pre-tax profit margin improved to 36.5% from 33.4% recorded a year ago.

As of Sep 30, 2015, Schwab's average interest-earning assets rose nearly 4% year over year to $160.3 billion.

Annualized return on equity ("ROE") as of Sep 30, 2015, came in at 13%, up from 12% recorded a year ago.

Other Business Developments

As of Sep 30, 2015, Schwab had total client assets of $2.42 trillion (up 1% year over year). Net new assets - bought by new and existing clients - were $30.8 billion during the quarter.

Also, Schwab added 254,000 new brokerage accounts in the third quarter. As of Sep 30, 2015, the company had a total of 9.7 million active brokerage accounts, 1.0 million banking accounts and 1.5 million corporate retirement plan participants.

Our Take

While focus on low-cost capital structure will improve Schwab's performance in the quarters ahead, we believe the company's financials will likely remain under pressure owing to a low interest rate environment.

However, the company has undertaken several initiatives to reduce its dependency on interest rates. Further, we believe that a stable capital position will boost its financials to some extent.

Currently, Schwab has a Zacks Rank #3 (Hold).

Among other investment brokers, Interactive Brokers Group, Inc. IBKR will release results on Oct 20; while Raymond James Financial, Inc. RJF is slated to report on Oct 21 and E*TRADE Financial Corp. ETFC will report on Oct 22.

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SCHWAB(CHAS) (SCHW): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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